Office of Planning and Budgeting

On Thursday, the American Association of State Colleges and Universities (AASCU) released a policy brief examining the potential consequences of Pay It Forward (PIF) (please see our previous blogs for background information).  The AASCU brief summarizes other, similar approaches to paying for college and analyses PIF as a potential state approach to financing public higher education.  

The report describes the following “13 Realities of PIF College Financing Proposals”:

  1. Most students could pay more, not less, for college.
  2. Considerable uncertainty would be introduced into campus budgeting and planning efforts.
  3. The majority of college costs are not covered.
  4. Students from sectors with the heaviest student debt burdens would be ineligible to participate.
  5. The class divides in public higher education, and more broadly, in American society, could intensify.
  6. Costs borne by students pursuing privately financed degrees and higher-paying careers would increase dramatically.
  7. PIF is duplicative—there are existing public and private programs that calibrate student debt to earnings.
  8. PIF’s start-up costs would be enormous.
  9. Payment collection would be costly and challenging.
  10. Campus and state leaders would have strong incentives to promote programs leading to high-paying occupations, to the possible detriment of the liberal and applied arts, humanities, and public service careers.
  11. Underlying college cost drivers would not be addressed.
  12. Support for state and institutional student financial aid could dissipate.
  13. Support for maintaining existing state investment in public higher education would erode, creating a pathway to privatization.

In addition, the authors discuss “The Unknowns of ‘Pay It Forward’”:

  1. How will institutional financing gaps be addressed?
  2. How would payments be collected?
  3. Who would control PIF funds?
  4. How would PIF’s structure and revenue generation differ from campus to campus?
  5. How would PIF complement or conflict with federal higher education programs?
  6. How would transfer students be integrated into PIF?
  7. What would be the consequences for noncompleters?
  8. How would college savings change under PIF?
  9. How would PIF affect campus philanthropic campaigns?

The report’s conclusion reads, “Creating a lifelong tax and privatizing public higher education through pay it forward is not the solution to addressing college affordability.”  

I recommend that readers review AASCU’s full report.

On Thursday, the American Association of State Colleges and Universities (AASCU) released its most State Outlook.  According to the report, state operating support for public  four-year colleges and universities is 3.6 percent higher for FY 2015 than it was for FY 2014. Of the 49 states that have passed a budget thus far, support for higher education increased in 43 states and decreased in only 6 states. Of those 6 states that reduced funding, all were under 3 percent: Alaska, Delaware, Kentucky, Missouri, Washington (0.8 percent decrease) and West Virginia.

There was a relatively small amount of variation between states in terms of their year-to-year funding changes. For FY 2015, the spread between the state with the largest gain and that with the largest cut was only a 24 percent—this is compared to 57 percent, 25 percent and 46 percent, respectively, in FYs 2012, 2013 and 2014. The report notes that this decreased volatility likely indicates “a continued post-recession stabilization of states’ budgets.”

Charitable contributions to U.S. colleges and universities increased 9 percent in 2013, to $33.8 billion—the highest recorded in the history of the Council for Aid to Education (CAE) Voluntary Support of Education (VSE) survey. In addition, college and university endowments grew by an average of 11.7 percent in FY 2013, according to a January 2014 study released by the National Association of College and University Business Officers and the Commonfund Institute.  This represents a significant improvement over the -0.3 percent return in FY 2012.

The report also describes ten highlights/trends from states’ 2014 legislative sessions, those being:

  1. State initiatives linking student access to economic and workforce development goals.
  2. Tuition freezes or increase caps in exchange for state reinvestment—this occurred in Washington and another example is discussed in our previous post.
  3. Performance-based funding systems that attempt to align institutional outcomes with state needs and priorities.
  4. Governor emphasis on efforts to advance state educational attainment goals.
  5. Interest in policies related to vocational and technical education, including allowing community colleges to grant certain four-year degrees (as described in our previous post).
  6. Efforts to develop a common set of expectations for what K-12 students should know in mathematics and language arts.
  7. STEM-related initiatives, including additional funding for STEM scholarships in Washington.
  8. Financial support for the renovating and/or constructing of new campus facilities—unfortunately, Washington’s legislature did not pass a capital budget.
  9. Bills allowing individuals to carry guns on public college and university campuses—as of March 2014, seven states had passed such legislation.
  10. Legislation that extends in-state tuition or, as occurred in Washington, state financial aid to undocumented students.

Other noteworthy policy topics described in the report include:

  • Student financial aid programs—some states broadened their programs while others limited them;
  • Online and competency-based education reciprocity agreements;
  • “Pay It Forward” Funding Schemes; and
  • Consumer protection as it pertains to student recruitment, advertising and financial aid at for-profit colleges.

On Thursday, The Equity Line, a blog by The Education Trust, posted a critique of Pay It Forward (PIF) that discusses some of PIF’s major flaws. As a reminder, under PIF, instead of paying tuition and fees upfront, students would pay back a certain percent of their adjusted gross income for 25 years. For more information about PIF and how its supporters have applied PIF to the UW, please see the full OPB brief.

The Equity Line’s blog post highlights that although PIF is marketed as a “debt-free” way to pay for college, it is actually just another student loan program:

  • It is estimated (by the author and the UW) that many students would pay more under PIF than they currently do to pay back student loans.
  • Students with significant need – who currently receive federal, state, and institutional grants to cover tuition and fees – may have their grants (which do not need to be paid back) replaced with loans (which do).
  • Students would not be able to cover these other education costs with federal or state need-based grants because by removing the cost of tuition and fees from a student’s budget, that student’s level of calculated need would fall as would their eligibility for federal and state need programs. Thus, students would have to take out more loans (or find a way to pay upfront) for these expenses.

As the author notes, rather than “Pay It Forward,” it’s really “Pay It Yourself and Pay More Than Ever.

In anticipation of last Monday’s “Pay It Forward” working conference in Philadelphia, national education groups and nonprofit organizations released a joint statement opposing the proposal. The joint statement is available here. For more information about PIF, please review our post about Oregon legislation requiring “consideration” of a “Pay It Forward, Pay Back” pilot. A comprehensive brief about the proposal’s UW application is available here.

(This piece was originally posted on 07/11/2013, however it was lost due to technical issues and is therefore re-posted here.)

Last week, the Oregon legislature passed a bill that, if signed by the governor, will implement a pilot program to study the effects and feasibility of substituting upfront tuition payments with income-based, post-graduation payments. For 24 years after graduating, four-year college students would pay back 3 percent of their income and community college students would pay back 1.5 percent. Students who do not graduate would pay back a smaller percent determined by how long they were in school.

If, after several years of study, Oregon decides to adopt a plan (or some form of it), it would signify a major shift in the funding paradigm for public institutions. But that’s a big IF. The plan has received considerable criticism due to a multitude of unanswered questions that could pose significant logistical barriers. For example:

  • How would institutions and/or the state pay for the plan’s implementation (i.e. the several years of foregone tuition revenue between when a student enters school and when they graduate and start earning pay)?
  • How would the state efficiently collect accurate income data on students who move out-of-state?
  • How would the state go about collecting and enforcing payments?
  • How would the plan account for and apply to part-time students, transfer students, mid-career students, and other non-traditional students?
  • How would the plan work with federal and state financial aid programs? Would low-income students be accommodated so as to avoid creating barriers to entry?
  • How does one pilot a 24-year repayment program in just 2 or 3 years?

Even if Oregon’s higher education commission, which is tasked with implementing the pilot program, can find viable answers to those questions, the plan still has a number of possible (if not likely) negative consequences. For instance, the plan may:

  • Magnify the public’s view of higher education as a private good (only benefiting the individual) rather than a public good (benefits for many) which, in turn, could spur the continuing and problematic trend of replacing state dollars with tuition revenue;
  • Make institutions even more vulnerable to economic variations and recessions as their revenue would be tied to graduates’ earning and unemployment rates; and
  • Create social and economic imbalance between Oregon and other states since students who expect to earn less—e.g. social science and humanities majors—would be incentivized to go to Oregon, and students expecting to earn more—e.g. engineering and medical students—would likely go elsewhere.

Granted, the idea of basing college payments on graduates’ income is not a new one. Some federal student loans are eligible for income-based repayment and a program similar to Oregon’s already exists in Australia. However, Australia’s version is administered at the federal level, meaning many problems inherent in Oregon’s plan (tracking students who move around the country, imbalance between states, etc.) are avoided.

The Economic Opportunity Institute, a liberal think tank in Seattle, proposed a version of the plan for Washington in October 2012; but, unlike Oregon’s version, it has yet to go anywhere.  We’ll keep you posted.